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Clas Ohlson UK expansion slows down

Swedish home improvement retailer Clas Ohlson AB's expansion in the U.K. is slowing down due to lower U.K. household spending, further highlighting the problems of a struggling U.K. retail sector.

The company, which opened its first store in Croydon in 2008, said Thursday it is "balancing its rate of expansion" as weaker economic growth in the U.K. has hit household spending.

It opened only four new stores in the U.K. during the 2011 financial year ended April 30, after planning to open six to ten stores. In fiscal 2012 it plans to open between one and four stores, a more cautious expansion that is of some concern to analysts, who value Clas Ohlson as a growth company.

"Since it is valued as a growth company, this is obviously not good," said Redeye analyst Jan Gleven.

"It is a challenging time. There is pressure on U.K. consumers, leading to pressure on the retailers," Chief Executive Klas Balkow said, however, adding that he is confident on the long-term future for the firm in the U.K.

U.K. household expenditure recorded its largest drop in almost two years in the first quarter of 2011 amid weak consumer confidence, high inflation and job insecurity -- all of which are squeezing disposable income and putting the brakes on consumer spending.

U.K. retail stocks fell Thursday after Home Retail Group PLC said consumer electronics sales had collapsed in the first quarter, dragging same-store sales at its general merchandise retailer Argos down 9.6%.

Earlier, Clas Ohlson, which sells a wide array of products from power drills and hammocks to fishing reels and photo frames, said that its plans to expand in the U.K. are supported by the fact that town-center trading is strong in the U.K. just like it is in the Nordics. In addition, while the firm expects that it will take time to establish a brand and market position in a new market, Balkow said it has taken advantage of the continued weak economic climate to sign contracts for attractive store locations that weren't previously available.

Start-up costs for new stores in the U.K. amount to approximately SEK5 million to SEK6 million per store, roughly twice the cost for start-ups in the Nordic countries, primarily due to greater marketing costs associated with expanding in a new market.

The firm also said that the share of selling expenses in relation to sales will initially be higher in the U.K. compared with Nordic markets. As a result, Clas Ohlson has said it expects that it will take "significantly longer" for a new store in the UK to reach the break-even point.

In addition, the stronger Swedish currency has hurt U.K. sales. Sales in the U.K in the 2011 financial year amounted to SEK228 million, up 99% from SEK115 million in the previous fiscal year. However, in local currencies sales were up 112% year-on-year. About 4% of Clas Ohlson's total sales came from the U.K. in the fiscal year ended April 30.

In total, Clas Ohlson has 61 stores in Sweden, 50 in Norway, 17 in Finland and 11 in the U.K

Source : Jens Hansegard - Dow Jones Newswires

Image by Graham Soult

23 June 2011
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